Taxation in a Global Digital Economy

1. S. 394VAT Challenges in a Digital World

1.1. Introductory Remarks

The brisk advancement of information and communication technology (ICT) facilitates trade and accelerates the circulation of ideas, helping the economy to grow and humanity to evolve. Legislators compete with scientists and innovators in a race which seems unfair: technology progresses rapidly while tax legislation tries to catch up. This imbalance creates a gap, especially in the field of Value Added Tax (VAT) which relates to everyday activity. Basic terminologies that used to be unassailable in the past are in question today. Words like ‘product’, ‘service’, and ‘location’ suddenly appear inadequate for portraying modern transactions, and regulators around the world are on a quest to find new ways of reasoning in their effort to grasp an emerging digital economy.

1.2. Identifying the Location and the Product

In ancient Greece, 3,000 years ago, City-States used to tax the consumption of foreign olive oil to secure their monopoly of production. The place of taxation coincided with the location of purchase, delivery, and consumption, making the life of the tax collector relatively easy. In the modern world, identifying the ...